Inside Asian Gaming

INSIDE ASIAN GAMING | February 2013 28 Unlike rolling-chip win rate, non-rolling- chip win rate varies across casino properties and is dependent on the average bet size, players’ length of play, speediness of the game and the house advantage. House advantage is very standard across the Macau casinos as baccarat dominates gaming activities. Speediness of the game is also largely the same across casino properties that have fully ramped up. The major differentiation among casinos is the average bet size and the players’ length of play. Quality casinos normally have players that bet larger and stay longer at the premises. These casinos, like The Venetian, can achieve a non-rolling chip win rate of over 25%. Junket Commission Structure In Macau, there are two major types of commission-rate structures: rolling chip- based and revenue-based. Rolling-chip-based commission is a simpler commission-rate system with casinos paying 1.25% of the rolling chip to the junkets as commission. The commission income received by a junket will not be correlated to the rolling chip win rate, allowing a more stable income stream. The revenue-based commission system has the commission tied to the rolling- chip win rate, resulting in a more volatile earnings stream. According to the example in the above table, the junket has lured in US$100 million of rolling chip for the casino and the revenue to the casino would be the same regardless of the commission structure adopted. The commission junket receives will, however, change significantly if different commission system is used.The junketwould receive US$0.79 million of commission if the casino enforces the revenue-based structure. The commission will be US$1.25 million (58% higher) if the casino adopts the rolling chip-based system. Currently, most casinos adopt the revenue-based commission system to share the risk of win-rate volatility with the junkets. The revenue-based commission offered to the junkets varies between 40% and 50%, with established casinos, like Wynn Macau, offering commission near the lower end of the band. According to our industry sources, Melco, Galaxy and Sands are the only casino operators that are still offering rolling chip- based commission. Junket Financing According to the junkets, their working capital is financed by shareholder’s capital, external borrowing, third-party investment A junket operator’s monthly working capital is affected if debt is not collectible. For example, we understand that during the Asian financial crisis, 70% of the junkets got wiped out. And during 2009, the number of licences fell 18%. In Focus